French August Consumer Spending Falls as Labor Market Worsens

By Sandrine Rastello

Sept. 23 (Bloomberg) -- French consumer spending on manufactured goods fell more than expected in August after the euro region's second-largest economy shrank and shed jobs.

Household spending on such goods, which accounts for about 15 percent of the economy, fell 0.3 percent from July, when it rose 0.4 percent, Insee, the national statistics office in Paris, said today. Economists expected a 0.1 percent decline, the median of 20 estimates in a Bloomberg survey showed. From a year earlier, spending declined 0.1 percent, the first year-on-year drop since September 1997.

``Spending has been flat over the past six months,'' said Maryse Pogodzinski, an economist at JPMorgan Chase & Co. in Paris. ``Shoppers have been hit in the face by huge price increases in food and energy and now the job market is deteriorating.''

Once the main driver to growth, household spending may wane further as cooling growth boosts unemployment. The economy contracted 0.3 percent in the second quarter, and the government cuts its 2008 growth forecast to around 1 percent, the slowest pace in six years. That started showing in payrolls, which declined for the first time in almost four years in the second quarter.

The 15-country euro region is also suffering from slowing global demand, which has curbed production and dragged its economy into its first contraction in almost a decade in the April-June period.

Spending on cars in France slipped 1 percent in August from the previous month, and purchases of clothes and leather goods dropped 1.9 percent, compared with a 0.1 percent decrease in July, Insee said today. Spending on home appliances and furniture rose 0.6 percent.

Lower Fuel Deliveries

While inflation slowed in August as crude oil prices declined from a July 11 record of $147.27 a barrel, the rate has never been under 3 percent this year, denting households' income.

Total SA, Europe's largest oil refiner, said last week demand for its fuel in its home market has fallen 6 percent this year because of higher prices. Deliveries to all French services stations dropped 12 percent in August after a 9.4 decrease in July, according to the Union Francaise des Industries Petrolieres, an industry trade organization.

``The end of the year will be better than the start,'' French Finance Minister Christine Lagarde said of 2009 on BFM Television today.

The government, which is due to outline its budget plans this week, probably won't meet its deficit target of 2.5 percent of gross domestic product this year, with Lagarde now saying it will be ``under 3 percent,'' compared with 2.7 percent last year.

President Nicolas Sarkozy was banking on almost 8 billion euros ($11.7 billion) of tax cuts this year to boost growth. With the steeper-than-expected slowdown and his popularity declining, he's expected to outline new proposals to boost growth in a speech on economic policies on Sept. 25 in the southern town of Toulon.

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net;